European Commission financial tax opposed by UK

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Media caption,
Jose Manuel Barroso: "We have to understand we are in a situation where we have to do things together"

Bank shares have fallen in London after the UK said it would "resist" a financial transaction tax on EU members proposed by the European Commission.

The tax would raise about 57bn euros ($78bn; £50bn) a year and would come into effect at the start of 2014.

At close, Royal Bank of Scotland was behind by 3.64%, Lloyds Banking Group by 2.4%, and Barclays by 1.22%.

London would be hardest hit by the tax as the majority of banking transactions in Europe come through the city.

'Tax on London?'

City of London officials have said that about 80% of the revenues of any Europe-wide financial tax would come from London.

Stuart Fraser of the City of London said the question that had to be asked was whether the proposal was "a tax on London".

Image caption,
The banking sector played a role in causing the economic crisis, the commission said

Mr Fraser also warned that such a tax could mean a lot of banking transaction being lost to outside of the EU, and that the cost of setting up the scheme could outstrip whatever monies it raised.

Under the proposals, the financial tax would be levied at a rate of 0.1% on all transactions between institutions when at least one party is based in the EU. Derivative contracts would be taxed at a rate of 0.01%.

The BBC's business editor Robert Peston said that while dealers and investors in financial products such as derivatives and bonds were not happy about the proposal, share dealers were more relaxed as the tax would cost less than the existing stamp duty, which the tax would replace.

Meanwhile, in Germany and France bank shares also fell at close, and the European Banking Federation called the tax a "nonsense".

Among the market losers were Deutsche Bank and Commerzbank in Germany, and Societe Generale and BNP Paribas in France.


Despite the opposition Algirdas Semeta, EC commissioner for taxation, customs, anti-fraud and audit, said: "Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect - a fair contribution from the financial sector."

The EU executive also points out that financial services are "in the majority of cases exempt from paying VAT (due to difficulties in measuring the taxable base)".

Germany and France have been among countries pressing the European Commission to propose the tax on all financial investment systems, as they seek to show their citizens they are serious about recouping some of the costs of the banking crisis.

Austria, Belgium, Norway and Spain also support such a tax.

Earlier, Commission president Jose Manuel Barroso had said banks must "make a contribution" as Europe faced its "greatest challenge".

A transaction tax would need the approval of the UK in order to be implemented across the EU.

The commission said that if the UK vetoed the tax, it would look to implement it in the eurozone.

Referring to "the constraints of unanimity", Mr Barroso said "further changes to the Treaty of Lisbon" may be required in order to push through measures to stabilise Europe's economy.

'Additional revenue'

The commission said the tax was "to ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the member states".

It said financial firms had played a role in the current "economic crisis" and was "under-taxed" compared with other sectors.

The "significant additional revenue" raised would contribute to public finances, it added.

A spokesperson for the UK Treasury said it would "absolutely resist" any tax that was not introduced globally.

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"We would not do anything that is not in the UK's interests," he told the BBC.

The Treasury has said there are also a number of practical issues that need to be worked through.

And the financial secretary to the Treasury, Mark Hoban, said the transaction tax would be ineffectual unless it was a global agreement.

"If it's not done at a global level, it's not done as part of a comprehensive package, then people will find ways around it," he said.

"They'll move business out of Europe, somewhere else, they'll find different products that are outside the scope of this transaction tax, so I think there's a lot of detail to be looked at to get this right."

Earlier, in his annual State of the Union address in Strasbourg, Mr Barroso had called not only for the transaction tax but for eurozone members to issue debt collectively, through so-called eurobonds.

"Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all," he said.

Further austerity

Officials from the commission, along with those from the European Central Bank and International Monetary Fund, are due to begin reviewing Greece's attempts to reduce its debt levels on Thursday.

Image caption,
Greece's new property tax has proved particularly unpopular

They will then decide whether to release about 8bn euros from a 110bn bailout package agreed last summer, money the Greek government badly needs in order to pay its bills.

A key obstacle to the payment was removed on Tuesday when the Greek parliament passed a controversial new property tax bill that aims to boost revenues.

Eurozone members are in the process of ratifying proposals put forward in July, one of which would see private lenders writing off about 20% of their loans to Greece.

The proposals also included expanding the powers of the eurozone bailout fund. Finland approved the plan on Wednesday, while Germany will vote on it on Thursday.

With 330 seats in the 620-seat Bundestag, Chancellor Angela Merkel can afford no more than 19 rebels if she is to deliver the 311 seats required for a majority.

Greek write-off

There has been renewed optimism this week that eurozone leaders may finally be ready to take decisive action to tackle the debt crisis.

G20 leaders met over the weekend to discuss the best way forward, but EU officials stressed that no grand plan of action had been agreed.

A number of ideas were reportedly discussed, including a 50% write-down of Greece's government debts.

Other proposals included strengthening big European banks that could be hit by any defaults by highly indebted governments, and boosting the size of the eurozone bailout fund.

These helped to boost investor sentiment with stock markets rising sharply on Tuesday, although Asian and European markets were largely flat on Wednesday.